Photographer: Andrey Rudakov/Bloomberg

Oil Gives Pause to Kazakhstan’s Wealth Fund on Asset Sales

Updated on
  • Samruk-Kazyna’s Grewal sees 2018 as likely start date of sales
  • Air Astana, Kazatomprom IPOs seen in 2 years as crude recovers

The crash in crude prices may have nudged Kazakhstan toward its biggest wave of privatization in history, but its wealth fund is now willing to bide its time for a recovery in oil to take hold.

Samruk-Kazyna, with assets worth over $64 billion, is in no hurry to kickstart the process, waiting until oil prices recover and Russia -- a key trading partner -- exits its recession, said Baljeet Kaur Grewal, managing director for strategy and portfolio investment at the fund. That’s why it now believes 2018 is a better target for previously announced initial public offerings, compared with earlier estimates that had next year as a possibility, she said in an interview in Singapore on Tuesday.

“In two years -- by which time we are ready to go to initial public offerings -- oil prices will have picked up, the resource demand will have picked up, and it will be a good time for a valuation of our assets and go to market,” Grewal said. 

Central Asia’s biggest energy producer is retooling an economy that’s at risk of its first contraction since 1998 after two devaluations last year following the crash in oil prices. President Nursultan Nazarbayev, who’s been in power since 1989 in the longest reign of any post-Soviet leader, has demanded an extensive overhaul, including the privatization of all state-run companies to attract investment and rekindle growth.

Oil Hurdle

Preparations for the IPOs are complex and still ongoing, and have been hindered by persistently low oil prices that have led to curtailed dividends, Grewal said. With oil now hovering near $45 a barrel, just above the $43 average expected by Samruk-Kazyna for this year, prospects are now brighter than they were months ago. The wealth fund sees oil trading between $45 and $50 next year, although “the market may surprise on the upside,” according to Grewal.

“We want to enhance value in our companies,” she said. “The objective of our privatization is to maximize economic impact. By that we mean it should create economies of scale, it should create investments for the market.”

Kazakhstan is looking to benefit from China’s new “Silk Road” linking Asia to Europe via a network of roads, railways, pipelines and ports, Grewal said. Chinese investors may be drawn to mining and commodity projects in particular, she said.

Less Control

The plan is for Samruk-Kazyna to cut its average ownership in the 216 companies in its portfolio to 15 percent from the current 70 percent, she said. That should result in a large capital injection, while leaving the degree of Kazakhstan’s government control at about the average for Asia, but still slightly above the European level, according to Grewal.

“We are transforming our portfolio of companies from national companies into commercially viable companies,” Grewal said. “We have culled a lot of these companies. They were fat, large companies.”

The country’s flagship carrier, Air Astana, part-owned by BAE Systems Plc, is likely to be the first of seven companies in the portfolio anticipated to list shares on Kazakhstan’s new stock market to be opened in Astana, the capital, Grewal said. Uranium producer Kazatomprom is among companies likely to follow suit with IPOs also in 2018, she said.

“These are the most nimble jewels in our portfolio,” Grewal said. “Other companies like KazMunaiGaz, our oil company, our postal company, our rail company, will list toward the latter part of 2018, or 2019. That will take some time because these are huge companies.”

Buyout Bid

Amid preparations for the IPO of KazMunaiGaz National Co., the state energy producer tried to buy out minority shareholders with a proposal opposed by the London-listed company’s independent directors and some investors as undervaluing the stock. Grewal declined to comment on how the failed deal can affect the attitudes of investors toward Kazakhstan’s state-run companies.

“We should be able to attract strategic investors that bring new technology and new ideas, and for that we need to transform these companies,” she said. “We have to ensure all of these companies have a viable strategy.”